Tea Nicola, CEO of WealthBar, raves about this technique.
"My daughter who is eight understands that there are three buckets of money that she has to keep track of: saving, spending and giving,” Nicola says. “For her, saving is usually for big ticket items like going to a special summer camp or other experiences she wants to have. Spending money is what she can use on a daily basis, such as buying a candy bar or something like that. We're also teaching her the importance of giving. This could be giving to charity ... or it could be giving to others, like buying a present for her friend’s birthday.”
Bring the kids in on family budget talks
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“I have found that the best way to teach your kids about money is to bring them in on family budget discussions,” says Leif Kristjansen, the founder of FiveYearFIREescape, where he blogs about his early retirement. “They will see how you responsibly handle all of life's pile of bills and issues. Kids naturally want to emulate their parents so they will start to think about spending and how to minimize it.”
These money talks should be casual and can even take place at the dinner table.
“Usually, we have the talks before dinner because we are all in the same room but we are open to discussions whenever they arise,” says Kristjansen. “Our talks would involve reminders between [my wife and I] to check or pay the bills or to move money into investment accounts.”
If your kids are too young to really participate, that’s fine. The goal here is to simply get comfortable talking about money as a family without stigma or stress.
Paying the bills online? Let kids in on the process
Budgeting and taking care of bills can be a headache. Why not bring your toddler in to lighten the mood? You may be rolling your eyes, but it's doable, says Kristjansen.
“I let my daughter [who is not yet school-aged] sit on my lap while I pay the bills or check on my investments to see how it works,” says Kristjansen. “I don't let her hit many buttons in case she does something bad, but she still likes it. Everything is digital now so it's less tangible for kids, but they know I hit some buttons on the computer to pay the bills and are happy to be a part of it.”
Give cash for birthdays so they see can make budget-based decisions
Come birthdays and other holidays where giving gifts is the norm, consider giving kids money instead. This not only saves you time on shopping, it empowers kids to do the math and be shrewd.
“We stopped buying gifts and started giving them money so that they can make budget-based decisions,” says Thomas. “In the past, when they made birthday and Christmas lists, they put so much on the list — we thought they should start understanding how much things cost.”
Allowance is fine, but make it count
Kids, like all humans in civilization, will come to a point when they need money. This could be for sports activities, a field trip or buying their friend a gift. Giving them an allowance is totally fine, but enable them to earn it. This again strengthens the understanding around how income works.
Nicola pays her eight-year-old daughter for doing chores outside her normal daily tasks (for instance, she does not get paid for cleaning her room or helping care for her younger brother, which are non-negotiable).
“You don't want [your child] to associate chores exclusively with earning money,” says Nicola. “Because if she ever gets a job, she's [then] going to stop doing chores in the house. And that's a problem, she has to contribute to the household like everybody else.”
Kevin Klug, co-owner of Secure Retirement Solutions, suggests giving allowance after a set of weekly chores have been completed. If the chores aren’t completed, “they now owe you [money] for every chore not completed.”
Allowance shouldn't just be for fun stuff
Allowance should be issued with the understanding that some of this money can be on fun stuff, but some of it also has to go towards covering needs. This lesson can intensify as kids get older.
“When deciding how much allowance to give, you’ll want to be sure that everyone understands what the allowance must cover. Is it school lunches? Snacks? Computer games? Extracurricular activities? For older children, you may want to add clothing or other bigger ticket items to the list,” says April Lewis-Parks, a mom and the director of education for Consolidated Credit. “Always write it down initially so there are no misunderstandings later.”
If your child is meeting their saving goals, consider throwing in a bit more cash the next week.
“We incentivize not spending their allowance by giving them extra money if last week's money is still around,” says Kristjansen. “It's an odd version of compounding but we are trying to drive home the value of saving.”
Kid blew all their money and needs more? Seize this teachable moment
Many parents can relate to this scenario: your kid had money, but they spent it all at the toy store. Now, you’re at the toy store again and they want something but they don’t have the money. What do you do?
Don’t cave. Instead, seize this “teachable moment,” as Cruze calls it.
“Teach them that when money runs out, it runs out,” Cruze says. “It will be tough in the moment, but in the long run you are teaching them to live below their means — and that’s the only way to win with money.”
Scrolling through the cable channels? Talk about your cable bill
Keep in mind that there are plenty of less painful teachable moments when it comes to lessons about money.
Misty Lynch, CFP, and head of financial planning at John Hancock, has found one such moment when watching TV with her young kids.
“They will look for movies on TV and can understand what the word ‘free’ means versus something you have to pay for,” says Lynch. “They love when things are free and so do I, considering what we already pay for cable.”
Work on your own relationship with money
Young children are constantly observing — and absorbing — our behavior. If you’re spending above your means, or stressing about money, your kids are likely picking up on this and learning that this is what money is: a thing of scarcity or scares, or whatever you project onto it.
“I always say that ‘more is caught than taught.’ Your kids will see how you handle your money, and their actions will mirror that,” says Cruze. “So if you are always stressed or have a scarcity mentality when it comes to money, they will likely grow up to be that way, too. If they see you spending above your means, they’ll think that’s normal for everyone. You have the opportunity as their parent to lead by example and set them up to win with their money.”
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